China: No Water, No Power

With an additional 1.2TW of power by 2030, HSBC asks if China has enough water to fuel its power expansion

Highlights-Water-reliant power only falls from 97% to 87% by 2030 as reliance on coal & hydro remain high-The water landscape is shifting: physical, economic & regulatory changes are afoot-Eleven provinces at risk identified; investors & lenders beware or be left stranded high & dry

Water fuelled power

Basically, it boils down to this… China plans to add 1.2TW which is more than the total installed power capacity of the US, UK and Australia by 2030 or 5.9x the total installed power capacity of India. That seems like a lot of power but really this just brings its per capita installed capacity up to 1.77kW/person, in line with the current G20 average.

Most of this expansion is in thermal power (coal, gas and nuclear) and hydropower, all of which require water to generate on a daily basis. Water’s role in hydropower is obvious, but we often forget that water is used in thermal power generation for cooling purposes as well as in steam-drive turbine generators. In fact, 97% of power generated in China is reliant on water today. China’s big renewables drive only manages to reduce water-reliant power to 87% by 2030. That is still a large amount of power that requires water to fuel. In the US, power generation is the largest user of water, accounting for 49% of total water use. We estimate that less than 10% of water is used by the power sector in China today. So China has a long way to go.

Double whammy for industry

“Without upfront action now, we believe the risk remains and future assets could be left stranded high & dry”

HSBC No Water, No Power Report

Industry faces a double whammy exposure to water and electricity. Industry is the largest guzzler of electricity at using up over 80% of electricity generated. Industrial water use is also projected by HSBC to be the fastest growing water segment vis-à-vis agriculture and municipal use between 2010-2020. Moreover, it is the water scarce provinces with a combined Gross Regional Product (GRP) accounting for 45% of National GDP that use almost 50% of the electricity. As usual it depends on which province you are in…

Provincial matters: The Dry 11 have it tough

Of course, it’s Sod’s law when it comes to distribution of resources (be it water, arable land, ore reserves) and policy targets amongst provinces. The report highlights:

Almost all of the Dry 11 have higher than national average ammonium nitrate and COD targets

Most of the Dry 11 have low annual growth allowance in provincial water usage quotas

The Dry 11 are highly reliant (>80%) on coal-fired power

The Dry 11 also unfortunately account for 47% of ensured coal reserves and therefore not surprisingly so does 47% of existing coal-fired capacity

Why is this a problem? One tonne of coal requires an estimated 3,000-11,500 litres of water to produce

In case you are still not convinced, China is expecting to add +453GW of coal-fired capacity by 2020, equivalent to twice Russia’s 2009 power generation capacity

Total installed capacity expansion is aggressive in water scarce regions as shown in the chart below:

The waterscape is a-changing: 11 Provinces at Risk identified

“Water & power risks need to be considered by financiers, investors and companies as a core feature of capital expanditure plans”

HSBC No Water No Power Report

The water landscape is shifting: : physical, economic and regulatory changes are afoot. Climate change and pollution only serve to exacerbate water scarcity. So as water resources fall, water use is on the rise with growing affluence in China. The report warns that limited resources, new central water quotas and provincial caps could force a change in economic mix and eleven “Provinces at Risk” are identified including economic powerhouses Guangdong, Jiangsu and Shandong as well as Beijing, Tianjin and Shanghai, which incidentally has to reduce water by a -6.5% p.a. by 2015.

Can these Provinces at Risk manage their energy and water targets? Project financiers, investors and companies beware: know your water risks or run the risk of being left high and dry.

19 September, 2012 – No Water, No Power: HSBC asks if there is enough water to fuel China’s power expansion in a newly released research report. China Water Risk was commissioned by HSBC Climate Change Centre to research and analyse the findings which form the basis of this report.

19 September 2012 – Water Stress: HSBC analyses global challenges ahead as climate change means historic water supply trends are no longer reliable with local water stress impacting productivity. Per capita water use is estimated to increse by 50% on average by 2030 for the G20.

About Debra Tan

Debra heads the China Water Risk team and spearheaded the development and build out of the China Water Risk brand and website in 2011. Since then, she has written extensively about the water-energy-food nexus as well as reports analyzing the impact of water risks on certain sectors for financial institutions and corporates. She has also given numerous keynotes, moderated and participated in panel discussions and conferences around water issues to investors and corporates. Debra started her career in finance, spending over a decade as a chartered accountant and investment banker specializing in mergers & acquisitions and strategic advisory. She has lived and worked in Beijing, HK, KL, London, New York and Singapore. Debra left banking to explore her creative side pursuing her interest in photography resulting in her first solo exhibition within a year. She also ran and organized hands-on philanthropic and luxury holidays for a small but global private members travel network and applied her auditing, financing and photography skills in the field for various charitable organizations and foundations.